On the Exponentiality of Life

There is a common misconception about how success accumulates. I repeatedly see posts on social media along the lines of:

I suppose the message is that if we are just a little better, we will be about 38 times as good a year from now. While it’s hard to challenge the notion that we should strive to be better every day, the message is hardly actionable.

The poster is missing a crucial point of exactly how effort compounds. In real life, compounding works slightly differently than in mathematics. Let me illustrate with an example from nature.

A tale of two acorns

Imagine an old oak tree dropping its yearly acorns. The acorns are carried away by nature and eventually, find a place to sprout.

When two such acorns are located in close proximity, a competition of the two will start. It’s a competition for nutrition, water, and sunlight. Initially, both will have plenty of all the ingredients for a strong start to life.

As the oak sprouts grow, they will eventually start leafing. The sprout that found an (even a slightly) more nutritious location will start the leafing a bit earlier. Maybe a day earlier, maybe more. The leaves act like massive solar cells to capture the energy of the sun, allowing for even faster growth.

As both plants grow in height and size, they will cast an increasingly larger shadow. The sprout which got the head start on leafing will have more and larger leaves and will develop larger roots to access more nutrition and water from the ground.

At first, each plant goes about its development independently of the other sprouts, but an interesting dynamic soon kicks in. At some point in time, one plant will reach a size where the leaves and twigs will start shading for the other, smaller, plant.

From this point onwards, there is no turning back: The larger sprout will get a disproportionate amount of sunlight and the deeper roots will capture more nutrition and water. Combined, this will allow the plant to grow taller and add further twigs and leaves even faster than the smaller plant, which in turn will mean that it will grow disproportionately faster at an accelerating rate.

From here on, it is only a matter of time before the larger plant will completely outgrow the smaller plant which will eventually fade and wither with the lack of sunlight and water.

The metaphoric shadow and reach for sunlight are applicable to many other parts of professional life. The following examples will highlight the commonalities between professional life and that of an acorn.

What entertainment, venture capital, and hairdressers have in common

At first, the tale of the two acorns may seem irrelevant to the real world – how often are you, after all, competing directly head-to-head with others?

If you look at Hollywood actors, a few actors earn more than almost everyone else combined. Are some actors, objectively speaking, really ten or 20 times better than your average A-list Hollywood actor? Not compared to the average actor, but an A-list actor. I’m not an expert, but it seems like pure talent is unlikely to explain the full difference in income. Rather, some actors seem to increase the likelihood of box office success significantly more than others. If an actor can increase ticket sales by just a few percentages because of his/her name alone, then that may warrant a much bigger pay.

Another example – in most metropolitan cities, the most expensive haircuts easily cost more than 10x the average, but that doesn’t mean that those expensive hairdressers are ten times better than the average hairdresser. In other words, the price you can charge as a hairdresser is not linearly correlated to your abilities. Similarly, a car that tops at 320 km/h will be more than twice as expensive as one that tops at 160 km/h, everything else being equal.

This is what economists call increasing returns to scale. Increases in input give you a disproportionately large increase in output.

The below graph indicates the relationship between the perceived level of skills and the outcomes (the price you can charge, the number of movie roles offered, etc.). The size/volume of outcomes (vertical axis) increase with your perceived abilities (or rather, the perception of your abilities), but not in a linear fashion. The point here is not the exact slope of the curve, but that the shape is highly convex. The graph is not linear – life is not linear!

Similarly, for venture capital (VC) investing, the vast majority of VC funds deliver below-market-rate returns, while a few continuously outperform the market2. It’s beyond the scope of this post to speculate in the average smarts across VCs, but one thing is for sure: The more successful you are, the more opportunities come your way – regardless of your smarts.

This is particularly important for VCs, as they need to “return the fund” on a few investments that make their money back 10, 20, or maybe even 100 times rather than a lot of “satisfactory” investments. For that reason, access to the best deals is a crucial requirement as those home run deals are scarce and missing one may be critical. No amount of smarts can make up for sub-par deal flow.

Implications

The conclusion is simple: The marginal effort counts the most. The next hour of effort counts more than the last. The opportunities you receive today are due to your hard work (or lack thereof) in the past.

The conclusion also implies that our time is “perishable”. Every day we do not move to the right on the curve, we are missing out on opportunities/revenue/etc. In other words, there is a massive opportunity cost of not being the best version of ourselves today.

In a professional context, this means that by not being at your best, you aren’t proving your worth and, as a consequence, you may then not receive the next opportunity or promotion. Many people talk about seeking your own luck. Being at your best will maximize the chances that you will be “lucky” when the chance comes.

Similarly, for most people, the early years in your career set the direction for the next many years. It’s harder to change the trajectory later on than to set it right from the start.

Whatever you set out to do, do it well. Give it all you’ve got. Anything else is a waste of time. Be the sprout that grows to cast a shadow rather than the one to stand in it. The importance of this can hardly be overstated.